Selling Your Medical Practice in a Few Years? You Should Start Planning Now.

Selling Your Medical Practice in a Few Years? You Should Start Planning Now.
Selling Your Medical Practice in a Few Years? You Should Start Planning Now.

A business sale is a long-term proposition, and Strategic Medical Brokers helps sellers take that long view. Unlike real estate or capital equipment, which can often sell quickly at a good price, businesses usually require extensive preparation for their sale to yield the maximum value. Some of our most successful deals have come from medical practice owners’ patience and commitment to preparing their business to sell at the right time, for the top dollar.

If you know you will want to sell your medical practice in the coming years, you could reap significant benefits by planning ahead. Working with a professional business intermediary like Strategic Medical Brokers years in advance will prepare your business to sell at the best time for the highest value. This planning will let us:

  1. Assist you in building business value
  2. Maximize our knowledge of the business
  3. Identify the best potential buyers for your medical practice

This blog will focus on that first item – how to build business value.

Here are some key steps our brokers can support and advise you on in the years leading up to your business sale.

Understand the Types of Value

It’s critical to look at the two types of values. First is the academic value, which is determined by a professional business valuation. We determine this value by a complex formula based on the business’s tangible assets, cash flow, industry averages, and multiples. Next is the true market value. This value takes the academic value into consideration, but also looks at what buyers are actually ready and willing to pay in the marketplace.

For many small and mid-sized businesses, tangible assets like equipment, vehicles, and inventory may be minimal, or even nonexistent. For these businesses, the value is primarily based on earnings and intangible assets – things like reputation, market share, employees, proprietary processes, intellectual property, patient lists, location, and referral relationships. Capitalizing on those intangible assets will maximize the true market value of your business. As you start considering your practice’s tangible and intangible assets, start thinking like a buyer. Take a critical look at what could enhance value in their eyes, and at any issues that could undermine the ultimate value of your company.

This is where an industry-savvy business intermediary can provide valuable insight. Experienced brokers can see your value from the right buyer’s perspective and combine that with in-depth knowledge of market conditions to create a winning sale.

Find and Build Your Niche

You don’t have to be everything to every potential buyer. Buyers will pay a premium for a niche that has barriers to competitive entry. This is where considering those intangible assets keeps coming into play. Perhaps you have a particularly advantageous business location, offer a unique medical service, employ certain key employees that give you a competitive edge, or have contracts with other businesses that your competitors lack. Find whatever niche gives you the best competitive edge, and really begin capitalizing on it.

Clean Up Your Financials & Assets

Working with a professional business broker well in advance of placing your business on the market will help you recast your financials in the most faithful and positive light. As you’re cleaning up your financials, focus on the following:

  • Ensure your asset records are up to date.
  • Strengthen your ratios – working capital, debt-to-equity, price-to-earnings, return on equity, and more. This doesn’t happen overnight, so you may need to bring in financial advisors.
  • Rid your income statement of non-business expenses. Dubious moves to lower your tax bill can lead to negative outcomes when it’s time to sell.
  • Improve cash flows, because a prospective buyer will want to see true cash flow. Be sure you are driving all income to your bottom line.
  • Review your assets and sell off or dispose of unproductive assets or inventory. Remove or buy off any assets that are primarily for your personal use.
  • Organize business records including sales and expense reports, internal financial statements, and tax returns.

Develop Key Employees

Buyers won’t typically pay top dollar if the business is overly reliant on the owner for its success. If you haven’t already, start delegating responsibility to your key employees and involve senior staff members in decision-making processes. When you can demonstrate that your company’s continued success relies on your team and not just you, it will pay off at the time of sale.

Document What You Do

Operational processes, strategic plans, and job descriptions should be well documented so you can hand them off to the buyer. Written records and plans will give a buyer greater confidence that they will be able to emulate your business growth, and they can also help your buyer obtain financing.

Build Relationships & Reputation

Business relationships, name recognition, customer awareness, and reputation go a long way in increasing the value of your medical practice. These are intangible assets that can prove to be even more valuable than hard assets. When considering your business relationships, if you realize you are particularly dependent on one or two referral sources, work to diversify your accounts before it’s time to sell.

Remodel, Clean, and Organize

The first things any home seller does when they put their house on the market is clean up clutter, make simple fixes, and freshen up how the house looks. Business sellers rarely consider these things, but we have seen over and over how well-maintained facilities will go for the best price. Even if your facility is leased rather than owned, you should still take the time to do a thorough cleaning and organization. It will convey a feeling of quality and efficiency that will translate into the value you receive from the sale.

Reduce Risk

A buyer’s interest and willingness to pay top dollar for your business is greatly influenced by their perception of risk. As you’re preparing to sell your practice, focus on these areas that often raise a red flag for potential risk:

  • Provider or payor concentration
  • Referral source dependency
  • Absence of contracts with key employees
  • Competition
  • Lack of regulatory compliance
  • Legal challenges

Get Started Now!

We recognize that you may not be ready to sell your business today, but you can see that the list of things to consider as you sell your medical practice is extensive! If you get started on these key steps well before you’re hoping to sell, you can be confident that you’ll maximize your selling price.

During this season of preparation, Strategic Medical Brokers can help guide you. We’ll help you understand all the steps you should be taking now so that when the time comes to put your business on the market, you can be confident it will achieve the highest value and best outcomes for you. And as we begin working together, we’ll gain valuable knowledge about your practice that will help us best position your medical practice in the marketplace when it’s time to sell.

Contact us via phone or email today to set up a discovery call to learn more.